THE REPUBLIC OF UGANDA
REPORT OF THE AUDITOR GENERAL ON THE FINANCIAL STATEMENTS OF
MINISTRY OF DEFENCE AND VETERAN AFFAIRS
FOR THE YEAR ENDED 30TH JUNE 2017
OFFICE OF THE AUDITOR GENERAL
UGANDA
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LIST OF ACROYNMS
APS Airforce Primary School
ASSS Airforce Senior Secondary School
GoU Government of Uganda
IESBA International Ethics Standards Board for Accountants
INTOSAI International Organization of Supreme Audit Institutions (INTOSAI)
ISSAIs International Standards of Supreme Audit Institutions
MOD Ministry of Defence
MODVA Ministry of Defence and Veterans Affairs
NHCCL National Housing and Construction Corporation Limited
UGX Uganda Shillings
UPDF Uganda Peoples Defence Forces
UPDAF Uganda Peoples Defence Air Force
UVAB Uganda Veterans Assistance Board
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REPORT OF THE AUDITOR GENERAL ON THE FINANCIAL STATEMENTS OF
MINISTRY OF DEFENCE AND VETERAN AFFAIRS
FOR THE YEAR ENDED 30TH JUNE, 2017
THE RT. HON. SPEAKER OF PARLIAMENT
REPORT ON THE FINANCIAL STATEMENTS
Opinion
I have audited the financial statements of the Ministry of Defence and Veteran Affairs for the
year ended 30th June 2017. These financial statements comprise of the statement of financial
position, the statement of financial performance, and cash flow statement together with other
accompanying statements, notes and accounting policies.
In my opinion, the financial statements of the Ministry of Defence and Veteran Affairs for the
year ended 30th June 2017 are prepared, in all material respects, in accordance with Section 51
of the Public Finance Management Act, 2015, and the Financial Reporting Guide, 2008.
Basis of Opinion
I conducted my audit in accordance with International Standards of Supreme Audit Institutions
(ISSAIs). My responsibilities under those standards are further described in the Auditor’s
Responsibilities for the Audit of the Financial Statement’s section of my report. I am
independent of the Ministry in accordance with the Constitution of the Republic of Uganda
(1995) as amended, the National Audit Act, 2008, the International Ethics Standards Board for
Accountants Code of Ethics for Professional Accountants (Parts A and B) (IESBA Code), the
International Organization of Supreme Audit Institutions (INTOSAI) Code of Ethics and other
independence requirements applicable to performing audits of Financial Statements in Uganda.
I have fulfilled my other ethical responsibilities in accordance with the IESBA Code, and in
accordance with other ethical requirements applicable to performing audits in Uganda. I
believe that the audit evidence I have obtained is sufficient and appropriate to provide a basis
for my opinion.
Key Audit Matters
Key audit matters are those matters that, in my professional judgment, were of most
significance in my audit of the financial statements of the current period. These matters were
addressed in the context of my audit of the financial statements as a whole, and in forming my
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opinion thereon, and I do not provide a separate opinion on these matters. I have determined
the matters described below to be the key audit matters communicated in my report.
Inadequate Controls Surrounding Management of Domestic Arrears
Domestic arrears refer to the total value of unpaid bills for goods and services rendered to a
government entity, including wages and pension that remain outstanding at the closure of a
financial year. There has been persistent accumulation of domestic arrears to unmanageable
levels which has led to settlement of arrears that are not authorized, unbudgeted for,
inadequately supported and in some instances there has been inadequate recognition and
disclosure of the domestic arrears. The variances between the reported figures in the
financial statements and the amounts verified by Internal Auditor General formed a basis of
my qualification of consolidated GOU financial statements for the year ended 30th June 2016.
Consequently, domestic arrears were considered a key audit matter which needed to be
examined to assess: the appropriateness of recording, recognition and disclosure of domestic
arrears; the trend and the underlying factors; and the adequacy of the internal controls
surrounding management of domestic arrears.
During audit planning, I focused on examination of domestic arrears in regard to goods and
services, salaries and wages, and pension and gratuity. I undertook the following procedures
in relation to domestic arrears: a trend analysis over a period of two years to ascertain the
underlying causes of accumulation; reviewed budget and commitment control procedures to
assess their effectiveness; ascertained the authenticity of the supporting documentation and
assessed the appropriateness of the accounting treatment. I also engaged the Accounting
Officer to enable me arrive at the audit conclusions.
Based on the procedure performed, I observed that an amount of UGX 90,765,034,582.was
irregularly incurred as domestic arrears outside the approved estimates appropriated by
Parliament and consequently, there has been an increase in domestic arrears over the period
of two years from UGX.718,433,532,862 to UGX.764,230,132,962 which makes the trend
unsustainable and I further observed that there was no budget provision for settlement of
domestic arrears totaling to UGX.658,191,931,565 posing a risk of diversion of funds for
settling the obligations.
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This may be as a result of existence of a weak and ineffective internal control system over
the control and management of domestic arrears. For example, the government commitment
control system was not adhered to.
I advised the Accounting Officer to always make budget provisions for domestic arrears and
avoid diverting money to pay domestic arrears not budgeted for.
Emphasis of matter
Without qualifying my opinion further, I draw attention to the following matters described in
notes 7 and 19 of the financial statements, and also in paragraph 8.3 of my report:
Irregular payment of rental dues
During the year, a sum of UGX.2,202,257,187 was paid to an advocate being rental
arrears for National Housing and Construction Corporation Ltd (NHCCL) for the 25 Housing
units at Bulime Estate at Entebbe Municipality.
A review of the various correspondences supporting this payment indicated that in 1989
Government of Uganda took a decision to compulsorily take over all properties overlooking
the Entebbe Airbase for security reasons. This includes properties owned by National
Housing and Construction Corporation (NHCC). At the time of compulsorily take over in
1989, NHCCL was 100% owned by Government of Uganda.
His Excellency directed the then Minister of State for Defence to conclude the issue of
compensation. Under the laws of Uganda, after compulsorily acquisition, the owner of the
property is only entitled to compensation and ownership taken over by Government. As
such from the time of taking over the Bulime houses by Ministry of Defence, these
properties became properties of the Ministry of Defence and NHCC was only entitled to
compensation of their interest but not rental income. The payment of UGX.2,202,257,187
being rental expenditure is therefore considered irregular.
I brought this matter to the attention of Parliament in my report for the year ended 30th
June 2015 in which I advised the Ministry to cross check records before committing
government funds.
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I could not justify why the Ministry did not seek legal advice from the Attorney General on
the matter before committing government funds. Paying rental arrears on properties which
have been compulsorily taken over is irregular and a loss of government resources.
Management explained that the payment of UGX.2,202,257,187 to a firm of Advocates
was made in settlement of outstanding rental arrears owed to NHCCL.
Although there was a declaration that Government takes over all properties overlooking
the Airbase for security purposes, the Housing Units at Bulime were not taken over and
ownership by Government was not concluded. As such this property was taken over by
NHCCL at the time of incorporation in 2005. The land titles for the 25 units were handed
over to NHCCL by National Housing and Construction Corporation among other assets as
provided in the Articles and Memorandum of Association of the NHCCL the new company.
Ministry of Defence who were now in occupation continued paying rent to NHCCL until
1995 when they stopped due to inadequate funds. This caused accumulation of rental
arrears to the tune of UGX.2,202,267,187 which the Ministry was obliged to pay.
Upon demand for payments of the arrears above MODVA challenged NHCCL to prove
ownership of the property and this was done by presentation of the 25 land titles
registered in the names of NHCCL. Therefore, payment was made on the basis of the
above findings. The advice of the Auditor General was taken and the Attorney General was
consulted on this matter and response is awaited.
I advised the Accounting Officer to continue following up the matter with the Attorney
General before committing government again.
Un disclosed Non Tax Revenue
Included in the Statement of Financial Performance is NTR collected by the Ministry
amounting to UGX.1,421,780,000. Detailed analysis of this amount indicated that the
Ministry collected rent from NIRA of UGX.952,000,000, MTN Marts UGX.162,000,000 and
from hire of Kololo Independence grounds and sale of bid documents UGX.258,820,000.
However, I was not availed with a Memorandum of Understanding between Airtel and
Ministry to confirm the amounts due from Airtel. I noted that there has been no revenue
collected and disclosed from Airtel masks.
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There is a risk of understating Non Tax Revenue collected and disclosed in the financial
statements.
Management explained that Airtel has not signed an MoU with the Ministry despite several
reminders. A final reminder has been made to the company, in case of non-compliance by
the company, more stringent measures will be applied.
I advised the Accounting Officer to follow up the matter with Airtel and have the
memorandum signed and ensure that the expected revenue is collected and properly
accounted for.
Other Matters
I consider it necessary to communicate the following matters other than those presented or
disclosed in the financial statements:
Institutional arrangements of Ministry of Defence and Veterans Affairs
In 2016 cabinet took a decision to create a Directorate responsible for Veteran Affairs
under the Ministry of Defence. The Minister of State in charge of Veteran Affairs was
appointed. The Uganda Veterans Assistance Board (UVAB) created by an Act of parliament
was in existence under UVAB Act Cap 212 of 1992. The Board was mandated to ensure
that military veterans and their dependents are sustainably reintegrated in civilian life in
social and economic terms.
I noted that there is a legal institutional framework on how the two entities would relate in
handling veteran affairs. However UVAB is still operating under the Office of the Prime
Minister since enactment and has had a fixed budget of UGX.500,000,000 that has not
been sufficient to cater for the operations of the Board to deliver on its mandate. During
the last three years, only UGX.1.5 bn was released to enable UVAB operate. The continued
operation of the MODVA without repealing the Uganda Assistance Board Act may
contravene the law leading to duplication of roles and waste of public resources.
Management explained that they are in the process of amending the UPDF Act to
mainstream the activities of the Veterans Assistance board roles into the Ministry.
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I advised the Accounting Officer to fast track the review of the UPDF Act to ensure that
the operations of the Veterans Affairs are streamlined to enable them operate in over 115
districts across the country.
Land Issues
The Ministry owns land across the country however; the land is not properly being
managed. I noted that there are incidences of undeveloped land, delays in acquiring titles,
allocation of land without proper guidance, land disputes and encroachment among
others. It appears that there are no effective established structures and framework to
manage land related matters as noted below;
Delays in acquiring Land Tittles
It was established that MOD owns different plots of land in different parts of the country
many of them have been surveyed and matters forwarded to Uganda Land Commission for
title processing. However, titles have not been obtained for those properties.
Land in Entebbe which is comprised of Bulime, Bazarabusa lane, Kitasa, Combe and
Cercular Road was all surveyed by the Ministry in 1998. However, to date Uganda Land
Commission has failed to process the land title in the names of Ministry of Defence. The
Ministry risks losing this prime land to land grabbers if no action is taken.
Management explained that the Ministry has engaged Uganda Land Commission to ensure
expeditious handling of submissions for titling army Land. In a letter dated 7th November,
2017 the Chairman ULC undertook to follow up all the previous submissions to ensure that
the titles are processed accordingly.
I advised the Accounting Officer to follow up this issue with Uganda Land Commission and
ensure that the titles are issued in MOD names.
Land occupied by MOD with claims from individuals not yet settled
It was established that UPDF has occupied 9 pieces of land that the entity does not own in
different parts of the country with uncompensated claims from original owners. There
were no clear reasons given for not compensating the owners when their land has been
taken over under compulsory acquisition. Besides, the amount to be compensated could
not be established. There is a risk that the claimant may go to court of law for redress.
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Management explained that there are pieces of land which UPDF has compulsorily
occupied for purposes of national security and individual owners have not been
compensated. The reason for delayed compensation is the inadequate budget allocations
for land compensation by MOFPED.
The Ministry has however received an allocation of UGX.17bn this financial year 2017/18
to partly settle this obligation. Payment processing is underway. It should however be
noted that this allocation is not adequate to fully settle the overall obligation of UGX.72bn.
Efforts are underway to continue engaging MOFPED for more funding for this purpose.
I advised the Accounting Officer to value the land, budget and compensate the land
owners to avoid future litigation costs.
Undeveloped land
It was established that the Ministry allocated some part of its land to private developers to
set up industries and other facilities intended to benefit Ugandans. The land allocated
includes 8 acres at Lunyo and 50 acres in Mubende. I was not availed with any document
signed by the Ministry to establish under what arrangements this land was allocated. By
the time of writing this report in November 2017, there were no development activities
going on this land.The objective of which the land was allocated may not be achieved.
Management explained that the land in question was allocated to investors on the basis of
a Government decision. The process of leasing is ongoing by the Uganda Land
Commission.
I advised the Accounting Officer to establish the terms and conditions under which the
land was allocated and ensure that it is put to intended purposes. In case of any
deviations from the intended purposes the land should revert to the Ministry.
Lower Katabi Land
It was established that lower Katabi land where Katabi Hospital is located was subdivided
into 5 plots and allocated to private developers by Wakiso District Land Board. An
inspection carried out on 27th October 2017 confirmed that these plots are within Ministry
Land which was surveyed and fenced off. The circumstances under which the 5 plots were
allocated, surveyed and titled by private developers could not be established. I was not
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availed with the list of the individuals claiming ownership of the lower Katabi land for
independent verification. Unless the matter is addressed, the Ministry is likely to lose the
land.
Management explained that the land at Lower Katabi was illegally allocated to individuals
by Wakiso District Land Board. There was no survey carried out in the Barracks. Ministry
of Defence/Uganda Peoples Defence Air force is currently in occupation of the land in
question. The Ministry contested this illegality and requested Uganda Police to investigate
the matter. A report is awaited.
I advised the Accounting Officer to investigate the allocation of this land by Wakiso District
Land Board with the view of cancelling these private titles.
Reallocation of Air Force Senior Secondary School (ASSS) Katabi
It was established that ASSS is still located within Katabi Barracks with classrooms mixed
with soldiers’ residences. The school is a mixed school with students especially girls being
exposed to higher risks within the barracks. The School also has no fence.
Left block is house for soldiers and on the right is a student’s classroom block
Classroom block with students on break while in the background
are homes for soldiers
Sometime in 2011 the Ministry of Education had condemned this school. The Board of
Governors of the school came up with a proposal to swap ASSS with Air force Primary
School and all parties were informed. All drawings were made to relocate ASSS to APS. I
noted that the Ministry decided to abandon this arrangement without justification. Failure
to reallocate exposes the children to abuse by soldiers.
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Management explained that the Ministry of Education and sports gave a grant of
classrooms, laboratory and latrines which were put up at a site near the Primary school.
Additional developments will be undertaken once funding is identified.
I advised the Accounting Officer to relocate the schools as per the advice from the Ministry
of Education to avoid eventual risks.
Construction of Nakasongola Airforce Flats Project
It was established that Ministry embarked on the renovation and completion of 2 block
flats in Nakasongola to accommodate air force personnel and students. A total of
UGX.1,075,000,000 was paid during the financial year 2016/17 in relation to the works. An
inspections carried out on 24th October 2017 confirmed that construction works had stalled
while the flats were still incomplete. Refer to the picture below. The UPDAF (Air force
Account) indicated that the closing balance on the account was UGX.410,726,481. This
included UGX.200,000,000 that was earlier on transferred by the Ministry for works on the
flats. I could not establish why the works had stalled when the Air Force had funds on the
account. There is a risk that funds will be diverted before the project is completed.
Management explained that the overall work progress is 74% and the expected
completion time is August 2018.
I advised Accounting Officer Management should follow up the construction works and
ensure that work is completed. This is aimed at minimising costs that may arise due to
delays.
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Under funding of deme repair Workshop in Magamaga
DEME Repair workshop in Magamaga is responsible for the repairing of all military vehicles
across the country. It was established that before the year 2005, the workshop was
running on an annual budget of UGX.3.4 billion meant to repair an estimated number of
600 vehicles. In the year 2005, the budget was further cut to UGX.2.46 billion and this has
been maintained to date.
An inspection carried out at the workshop on 25th October 2017 revealed that the total
number of fleets for repair has double ever since from 600 to approximately 1,300 fleets.
A further increase was noted in the dollar rates from an average of $.1800 to $.3800,
which has doubled the inflation rates in the country. There has also been a continuous
change in technology thus increasing the cost of the spare parts to use in repairing the
vehicles.
VEHICLES UNDER REPAIR FUEL TANKS BEING SPRAYED
Inadequate facilitation of the workshop led to increased costs of repairs through referrals
to other service providers. A number of vehicles were found lying unattended to in the
workshop. This situation is likely to deteriorate the value of the vehicles.
Management explained that under funding of the workshop is not unique to this facility,
this is as a result of the overall critical underfunding to MODVA yet the demands have
steadily increased. Efforts have been made to purchase new vehicles in UPDF, therefore
reducing the cost of repairs. The hard to maintain vehicles are continually being boarded
off on a yearly basis.
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I advised the Accounting Officer to source for more funding from Ministry of Finance,
Planning and Economic Development and improve on the operations of the workshop with
a view of reducing repair costs.
Responsibilities of the Accounting Officer for the Financial Statements
Under Article 164 of the Constitution of the Republic of Uganda, 1995 (as amended) and
Section 45 of the Public Finance Management Act, 2015, the Accounting Officer is accountable
to Parliament for the funds and resources of the Ministry.
The Accounting Officer is also responsible for the preparation of financial statements in
accordance with the requirements of the Public Finance Management Act, 2015, and the
Financial Reporting Guide, 2008, and for such internal control as management determines is
necessary to enable the preparation of financial statements that are free from material
misstatements, whether due to fraud or error.
In preparing the financial statements, the Accounting Officer is responsible for assessing the
Ministry’s ability to continue delivering its mandate, disclosing, as applicable, matters related to
affecting the delivery of the mandate of the Ministry, and using the Financial Reporting Guide
2008 unless the Accounting Officer has a realistic alternative to the contrary.
The Accounting Officer is responsible for overseeing the Ministry’s financial reporting process.
Auditor’s Responsibilities for the Audit of the Financial Statements
My objectives are to obtain reasonable assurance about whether the financial statements as a
whole are free from material misstatement, whether due to fraud or error, and to issue an
auditor’s report that includes my opinion. Reasonable assurance is a high level of assurance,
but is not a guarantee that an audit conducted in accordance with ISSAIs will always detect a
material misstatement when it exists. Misstatements can arise from fraud or error and are
considered material if, individually or in the aggregate, they could reasonably be expected to
influence the economic decisions of users taken on the basis of these financial statements.
As part of an audit in accordance with ISSAIs, I exercise professional judgment and maintain
professional skepticism throughout the audit. I also:
Identify and assess the risks of material misstatement of the financial statements, whether
due to fraud or error, design and perform audit procedures responsive to those risks, and
obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion.
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The risk of not detecting a material misstatement resulting from fraud is higher than for
one resulting from error, as fraud may involve collusion, forgery, intentional omissions,
misrepresentations, or the override of internal control.
Obtain an understanding of internal control relevant to the audit in order to design audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Ministry’s internal control.
Evaluate the appropriateness of accounting policies used and the reasonableness of
accounting estimates and related disclosures made by management.
Conclude on the appropriateness of management’s use of the going concern basis of
accounting and, based on the audit evidence obtained, whether a material uncertainty
exists related to events or conditions that may cast significant doubt on the Ministry’s
ability to deliver its mandate. If I conclude that a material uncertainty exists, I am required
to draw attention in my auditor’s report to the related disclosures in the financial
statements or, if such disclosures are inadequate, to modify my opinion. My conclusions
are based on the audit evidence obtained up to the date of my auditor’s report. However,
future events or conditions may cause the Ministry to fail to deliver its mandate.
Evaluate the overall presentation, structure and content of the financial statements,
including the disclosures, and whether the financial statements represent the underlying
transactions and events in a manner that achieves fair presentation.
I communicate with the Accounting Officer regarding, among other matters, the planned scope
and timing of the audit and significant audit findings, including any significant deficiencies in
internal control that I identify during my audit.
I also provide the Accounting Officer with a statement that I have complied with relevant
ethical requirements regarding independence, and to communicate with him/her all
relationships and other matters that may reasonably be thought to bear on my independence,
and where applicable, related safeguards.
From the matters communicated with the Accounting Officer, I determine those matters that
were of most significance in the audit of the financial statements of the current period and are
therefore the key audit matters. I describe these matters in my auditor’s report unless law or
regulation precludes public disclosure about the matter or when, in extremely rare
circumstances, I determine that a matter should not be communicated in my report because
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the adverse consequences of doing so would reasonably be expected to outweigh the public
interest benefits of such communication.
John F.S. Muwanga
AUDITOR GENERAL
KAMPALA
15th December, 2017
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APPENDIX 1
FINANCIAL STATEMENTS